The divided Korean Peninsula appeared to be teetering on the brink of all-out war yesterday after the North fired dozens of shells across the border during military drills by the South. Two South Korean soldiers were killed and 16 other people were reportedly injured.

The divided Korean Peninsula appeared to be teetering on the brink of all-out war yesterday after the North fired dozens of shells across the border during military drills by the South. Two South Korean soldiers were killed and 16 other people were reportedly injured.

The artillery bombardment left parts of Yeonpyeong Island in the Yellow Sea, north west of the capital Seoul, in smoking ruins.

President Lee Myung-bak put the South's military on its highest alert and called the shelling a “completely unforgivable” attack on civilians.

“I think enormous retaliation is going to be necessary to make North Korea incapable of provoking us again,” he told Yonhap news agency.

Mr Lee insisted that an attack on a village of farmers and fishermen, accustomed to living in peace with the certainty that South Korean forces patrolling the waters around them would ensure their survival, could not go unanswered.

The attacks called for “a response beyond the rule of engagement”, he said.

As political pressure mounted for a return strike, he added: “Our military should show this through action rather than an administrative response.”

In Seoul, fearful members of the public crowded around television sets showing plumes of smoke rising from the village.

“People are shocked,” said office worker Lee Yong-suk,. “People are dying. It's a kind of war.”

South Korea's defence ministry claimed that dozens of homes were hit in the hour-long attack, apparently targeted at a military base, and that the South Korean military fired back about 80 shells before the two sides returned to an uneasy stand-off.

Pyongyang claimed the South fired first and threatened a “merciless” response.

In a statement aired on the state-run KCNA news agency, the North's military said the South had “recklessly provoked” yesterday's exchange by firing “dozens of shells” inside its territorial waters during military exercises, “despite repeated warnings”.

It added: “The revolutionary armed forces of the Democratic People's Republic of Korea standing guard over the inviolable territorial waters of the country took such decisive military step as reacting to the military provocation of the puppet group with a prompt powerful physical strike.”